Magazine article The Middle East

Diversifying Success: Change Is Afoot in Libya Where Economic Growth Continues at a Healthy Rate. (Libya)

Magazine article The Middle East

Diversifying Success: Change Is Afoot in Libya Where Economic Growth Continues at a Healthy Rate. (Libya)

Article excerpt

Libya's economy is in the middle of a process of transition. Renewed interest in the country's plentiful gas reserves is reducing dependence on crude oil exports, while the government's improved relations with the West is being accompanied by increased investment by foreign oil companies. Genuine diversification remains a long way off but the transformation of the economy at least remains on track and increased involvement with the rest of the world can only help the process of internal reform.

The economy as a whole continues to grow at a healthy rate. Non-oil GDP has increased from Libyan dinar (LD) 6.8bn in 1994 to LD 11.6bn by 2001, while oil and gas sector GDP rose from LD 2.9bn in 1994 to LD 6bn in 2001. In dollar terms, GDP growth fluctuates in the 3-6.5% band but the political leadership is eager to keep growth above the magical 5% figure, beyond which real progress can be made beyond supplying the needs of the country's growing population.

Despite the progress that has been made, there is no doubt that the fortunes of the Libyan economy are in large part dictated by the oil price. Low crude prices in 1998 resulted in oil revenues of just $6bn and a substantial budget deficit.

The share of the foreign investment cake taken up by the oil sector shows no signs of receding and at least 90% of all contracts signed with foreign firms in 2001 related to the hydrocarbon sector. Yet on paper Libya is becoming less dependent upon oil: crude revenues accounted for 70% of GDP in the early 1980s but this has now fallen to 30%, a major turnaround in anyone's book. But although it is true to say that there has been a great deal of diversification, most of the development has been in sectors associated with the oil industry, principally Libya's growing gas sector.

Interest in the country's gas reserves has reawakened in recent years. Although Libya was the second country in the world to begin exporting liquefied natural gas (LNG), gas sector development was neglected in favour of oil investment for many years. However, the improvement in relations between Tripoli and western Europe has coincided with growing European enthusiasm for gas fired power generation and the liberalisation of European Union gas and power markets.

Although proven reserves are estimated at a substantial 46.4 trillion cubic feet, the lack of interest in gas over the past 15 years means that the eventual figure could be much higher. The headline grabbing project in the sector is the $4.5bn Western Libyan Gas Project--a joint venture between Libya's state oil company National Oil Corporation and Agip-Eni. The gas will be exported to Italian power company Edison Gas, Energia Gas of Italy and also Gaz de France via a 600km pipeline, named Green Stream, to Sicily and then on to mainland Italy. Capacity will be 280bn cubic feet of gas a year, part of which will be sourced from Agip-Eni's Block NC 41 in the Gulf of Gabes. The development of the scheme is already well underway with first deliveries expected in 2004.

Although the government is eager to attract more investment into exploration, new fields continue to be brought into production. The Elephant field on Block NC 174 in the Murzuq Basin is due to come on stream any day now. Production should reach 150,000 barrels a day (b/d) within two years, almost certainly via an existing pipeline located just 67kms to the north. Production was originally due to commence in 2000 but administrative delays held up development work on the 560m barrels of recoverable reserves.

The Elephant concession is operated by UK company Lasmo, with a 33.3% stake, with the remaining equity split equally between Agip-Eni and a consortium of five South Korean companies. As on many Libyan fields, production costs are estimated at an enviable $1 a barrel. Such low costs were undoubtedly a deciding factor in the findings of a survey of oil companies by Robertson Research in 2002. …

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